Time for a quick review of some terms.
Gross profit is the money left after paying all job-related costs. Gross profit is used to pay overhead expenses and profit.
Net profit is the money left after all the bills are paid.
Owner’s salary: This is an overhead expense. It should be a fixed figure, taken as a draw every two weeks or once a month. Your salary does not pay for your time working on jobs, whether it is delivering materials, supervising, cleaning up, etc. The owner is paid a salary to manage the business.
Owner’s wages: This is a job cost expense that is paid to the owner for working on a job, delivering materials to the job, supervising the job, cleaning up a job, etc.
Make sure that you are paying yourself to work on jobs. If you are unable for whatever reason to do the work on a job, you will need to hire someone to do that work. If your job estimate didn’t include the cost of your labor on the job, you will lose money when you have to hire someone else.
The knowledge and experience Michael Stone gained in his 60+ years in construction has helped thousands of contractors improve their businesses and their lives. He is the author of the books Markup & Profit Revisited, Profitable Sales, and Estimating Construction Profitably, and is available for one-on-one consultations as needed.
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